GROUP WORK – CASE STUDY

GROUP 1
1. READY-MIXED CONCRETE
A ready-mixed concrete supply PAK, supplied Grade G25 concrete to the contractor EW for all
their structural works. Slump Tests and Cube Tests were successfully carried out for all
batches. However when cracks appeared in the completed slabs, structures and walls, EW
claimed that the ready-mixed concrete supplied did not comply with specifications and not fit for
purpose. EW refused to pay PAK. EW conducted Core Test on the structures and it failed. PAK
argued that the Core Test failed due to the contractor’s poor workmanship and not the quality
of the supplied concrete. But EW later implied that the slump and cube test had been
manipulated and there was fraud.
Should EW pay PAK since the structure did not pass the Core Test? Explain the reason for
your answer.

Ans:
EW shall not pay PAK since the structure did not pass the Core Test.

PAM 2006 : Clause 6.0 – Materials, Goods and Workmanship To Conform To Description,
Testing And Inspection.

Clause 6.7 Failure of Contractor to comply

Employer may employ others to execute and set-off as per Clause 30.4.
Option to determine under Clause 25.1(d).

Clause 30.4 Set-off by Employer

The Employer shall be entitled to set-off all cost incurred and loss/ expense expressly allowed
under the Contract, provided:
(a) Architect/QS has provided the assessment of such set-off; and
(b) Given written notice not less than 28 Days before the set-off is deducted from the payment.
The Contractor may dispute within 21 Days and if the parties are unable to agree within next 21
Days, either party may refer the dispute to adjudication under Clause 34.1.
No set-off is allowed unless agreed by Contractor or as decided by adjudicator.

Clause 25.1 Defaults by Contractor

PAM1998 – determination of ‘the Contract’
PAM2006 – determination of ‘the employment of Contractor’.
If Contract is determined, the Contract conditions will cease to apply.
Parties need to rely on Contract Act 1950 & common law.
Employer may determine the employment of Contractor if he defaults in:
(a) if without reasonable cause, fails to commence the Works in
accordance with the Contract; or
(b) if without reasonable cause, ‘wholly or substantially’ suspends the
Works before completion:
(c) fails to proceed regularly and/or diligently with the Works;
(d) persistently refuses or neglect to comply with an AI;
(e) fails to comply with Clause 17.0 - any assignment without consent;
(f) has abandoned the Works.

• HELD: The court awarded in favour of PAK. To determine quality of concrete is Slump Test
and Cube Test. PAK is not liable for Core Test as this involve EW workmanship.
• There has never been any written protest from EW on allegation of fraud.

Issues arising from the case

Several issues were raised and decided by the court as follows:
 
The court held that there is no issue or dispute on the quantity of the concrete supplied by PA
Konkrit. As such Eco World was estopped from disputing the actual sum owed to PA Konkrit
where the quantity and price were concerned.
 
The main focus of the case is on the quality of the concrete and the results of the relevant tests
as required in the contract, namely the claims by Eco World that the concrete did not comply
with the specification, that the concrete was not of the requisite compressive strength resulting
in cracks appearing in the slabs, structures or walls, and that the relevant test results had been
manipulated.
 
The court held that to determine the quality, namely the strength and integrity of the concrete,
and whether fit for purpose, is the Slump Test and the Cube Test. For general information,
tests are done by taking samples of the freshly delivered concrete and carry out the Slump
Test. The Slump Test is done before making the cubes to ensure that the concrete is usable,
as it measures the consistency of the fresh concrete before it sets. If the Slump Test fails to
meet the specification, then the load shall be rejected. The Cube Test measures the
compressible cube strength of the concrete after it hardens, and the tests are governed by
standards set in the specifications.
 
The court further held that once the concrete was delivered to Eco World, PA Konkrit had no
more control over the concrete, workmanship, placement, consolidation, compaction and
vibration. It followed logically and reasonably that the PA Konkrit’s scope of work ended at the
stage of delivery of the concrete to Eco World.
 
Eco World claimed that the concrete supplied has to also pass the Core Test. For general
information, the Core Test is generally performed to assess whether suspect concrete in the
new structure complies with the strength-based acceptance criteria or not. The Core Test is
critically used to determine in-place concrete strengths in the existing structure for the
evaluation of structural capacity.
 
In this regard, the court held that to agree with Eco World’s stand that the concrete supplied
had to also pass the Core Test would mean that PA Konkrit had to guarantee that there would
be no cracks in the concrete structures no matter how bad the workmanship in the laying,
concreting, compacting and curing of the concrete in the formwork was, even after passing the
strength test under the prescribed Cube Test. This was not a term of the contract. The court
reiterated that the concrete supplied and delivered had passed all the Slump Test and Cube
Test accordingly.
 
Eco World had also implied that PA Konkrit had defrauded the Cube Test results by
mishandling the Cube Samples sent to the labs for testing and tampering with the Cube Test
results.
 
The court held that there was no written protest from Eco World on such allegation, and there
was overall no particular evidence of fraud, and what was pleaded was just broad generalities.
The standard of proof for fraud in civil cases was on a balance of probabilities. Eco World had
failed to adduce any cogent evidence to prove that PA Konkrit had swapped the Cube Samples
or tampered with or otherwise manipulated the entire process of the Cube Testing, as required
under s 101 of the Evidence Act 1950.
 
Lessons learnt from the case and best practices to be adopted
 
The present case validates a known fact in the construction industry on the importance and
value of carrying out the Cube Tests in accordance with the specifications. The tests verify
compliance with the required standards, confirm the strength and integrity of the concrete, save
time and costly investigations later should the structure fails.
 
The scope of work or liability of the supplier of ready-mixed concrete is on passing the Slump
Test and Cube Test to confirm that the quality of concrete delivered to the site is in accordance
with the contractual specifications. The supplier cannot be held liable for the quality of
workmanship of the structure after the concrete had passed the Slump Test and Cube Test.
 
Letters, correspondences and paper trails are important evidence of any allegations of fraud,
tampering, mishandling or misrepresentation. Upon any suspicion of such fraudulent
behaviour, it is advisable to issue a note of protest. As held by the court, silence and the
absence of protestations raised an inference that there was nothing wrong.
2. SUSPENSION OF WORK
A contractor KS alleged non-payment on payment certificate by the employer YBK. KS issued
a notice of suspension due to non-payment in accordance with clause 30.7 of PAM2006
contract and subsequently suspended works. Upon suspension of the work by the contractor,
YBK issued a notice of default and later a notice of termination and argued that payment not
made as YBK failed to comply with Architect’s Instruction.
Discuss the dispute and explain which party is in the right.

• HELD: High Court judge awarded in favour of YBK and held that KS had no right to
suspend work and YBK was not in breach in not honouring payment certificate.
Subsequently KS appeal.
• HELD: . Court of Appeal awarded in favour of KS. It held that the notice of termination by
YBK was unlawful since KS has the right to suspend works under PAM2006 and given
notice of suspension which was valid.

Kembang Serantau v YBK Usahasama

The case stemmed from a payment dispute between the contractor/Plaintiff, Kembang Serantau
Sdn Bhd (“KembangSerantau”), and the employer/Defendant, YBK Usahasama Sdn Bhd (“YBK”).
The High Court judge awarded in favour of YBK. The court held that Kembang Serantau had no
right to suspend work and as such YBK was not in breach of the contract in not honouring the
payment certificate. Subsequently, Kembang Serantau appealed and the Court of Appeal allowed
in part Kembang Serantau’s claim and dismissed YBK’s counterclaim.
 
Issues arising from the case
Several issues were raised and decided by the Court of Appeal as follows:
 
The contractual terms and agreement of the contract was based on the PAM Contract 2006 (“PAM
2006”) and the Additional Provisions to the Contract (“Additional COC”). The Court of Appeal held
that PAM 2006 would remain as the main contract between the parties, and if there was a
discrepancy or conflict between the contract documents, the terms of the Additional COC would
prevail.
 
Kembang Serantau alleged insulting and insolent conduct by YBK in persistently delaying payment
upon the payment certificate. Consequently, Kembang Serantau issued a notice of suspension in
accordance with Clause 30.7 of the PAM 2006 and suspended the execution of the works until
such time payment was made. YBK argued that payment could not be made as Kembang
Serantau failed to comply with the architect’s instruction.
The Court of Appeal held that the PAM 2006 and the Additional COC clearly have no discrepancy
or conflict, and Kembang Serantau had submitted its progress claim pursuant to Clause 30.0 of the
PAM 2006, and upon any failure to pay by the prescribed time, Kembang Serantau was at liberty,
after giving the necessary notice, to invoke Clause 30.7 of the PAM 2006, suspending the
execution of the works until payment was made. Therefore, the notice of suspension issued by
Kembang Serantau was valid and lawful. Since the suspension of the works by Kembang Serantau
was lawful, Kembang Serantau was entitled to claim for the idling costs of the machineries in the
sum of RM610,000.00. The Court of Appeal added that pursuant to Clause 30.7 of the PAM 2006,
the trial judge had fallen into error when he found that Kembang Serantau had no right to suspend
works.
 
In response to Kembang Serantau’s notice of suspension and subsequent suspension of works,
the Defendant’s architect issued a notice of default and later a notice of termination. The trial judge
found the termination of the contract by YBK before the lapse of 14 days as required in Clause
25.2 of the PAM 2006 to be unlawful. Consequently, the High Court allowed Kembang Serantau’s
claim of RM3.9mil and YBK’s counterclaim of RM4.3mil, both with interest.
In this regard, the Court of Appeal held that the trial judge was right in finding that the termination
by YBK was invalid and unlawful, but for different reasons. The Court of Appeal held that the notice
of termination issued by YBK was patently premature, invalid and unlawful. The Court of Appeal
reasoned that since Kembang Serantau had the right to suspend works under the PAM 2006, and
had given the notice of suspension which was valid, YBK had no right to terminate by reason of the
suspension.
 
The Court of Appeal dismissed the Defendant’s counterclaim for rectification costs since the cost
was not specifically pleaded and proved, and particularly the termination was invalid.
 
Lessons learnt from the case and best practices to be adopted
The clauses in a standard form of contract basically provide three main objectives: (i) the rights
and obligations of both parties to the contract; (ii) the consequence of any default on those
obligations; and (iii) procedures for those rights. In most cases, the Defendant will resort to
procedural non-adherence to dismiss claims that are generally rightly owed. The present case
showcased the observance to the prescribed procedure by the contractor, and this resulted in the
success of his appeal as pointed out by the Court of Appeal that the trial judge erred in dismissing
the rights of the contractor upon issuance of the notice of suspension.
It is common practice in the construction industry for contracts to include addenda to the standard
form of contract, or additional provisions to the contract. The main purpose of these addenda or
additional provisions is to amend or change the relevant clauses of a standard contract to be in line
with the requirements and needs of the employer. It should be checked against other related
provisions or cross-referencing clauses of the standard contract to avoid any discrepancy. Two
main issues are to be noted upon these additional provisions: first, the main standard contract and
the additional provisions are to be read together, as the additional provisions only amend or
change the relevant standard clauses as required; andsecondly, should there be any discrepancy
or conflict of the terms, the additional provisions will prevail.
However, if there are too many amendments to be made to the standard clauses, it is inevitable
that there will be discrepancy and conflicts as there would be a lot of cross-referencing in the
contract, andchanging a clause may affect other clauses. It is thus advisable for any major or
unique project to have its own bespoke contract.
The present case regarding payment disputes went direct into litigation rather than the ubiquitous
alternative dispute resolution method, namely adjudication, as provided in the Construction
Industry Payment and Adjudication Act2012 (“CIPAA”). The CIDB Construction Law Report since
2015 has seen a growing number of adjudicated cases invoking s13 of the CIPAA which provides
that adjudication decision is binding unless the dispute is finally decided by arbitration or the court.
There have been many instances of the losing party in an adjudication case having the dispute re-
determined or re-commenced in court. The present case is amongst the few emerging trends of
payment dispute that did not prefer adjudication as their alternative dispute resolution method.
Whether this is a healthy trend to the construction and legal industry is yet to be seen.
Straightforward disputes such as the present case that involves the interpretation of expressed
terms in the contract could relatively be easily resolved, avoiding lengthy and costly trials through
another alternative dispute resolution method, namely mediation. The present case regarding non-
payment by the employer and suspension of work by the contractor are all expressed provisions in
the contract.
 
The construction industry in Malaysia is known to be very adversarial. Each party construes the
contract clauses to their benefit rather than what is fair and just. Mediation is a consensual dispute
resolution process that can resolve a dispute at an early stage of its development before it grows
into a full-blown dispute. Mediation in Malaysia is not new,it has a long and established history in
Malaysia as a way of resolving disputes. Mediation as defined in s3 of the Mediation Act 2012: “a
voluntary process in which a mediator facilitates communication and negotiation between parties to
assist the parties in reaching an agreement regarding a dispute.” According to the preamble to the
Mediation Act 2012, the legislation seeks “to promote and encourage mediation as a method of
alternative dispute resolution by providing for the process of mediation, thereby facilitating the
parties in disputes to settle disputes in a fair, speedy and cost-effective manner and to provide for
related matters.”
Harbans Singh K.S, Samrith Kaur, Rammit Kaur and LouiseAzmi,Practice and Procedure of
Mediation (Sweet & Maxwell, 2020).